National Blog

Fact Checking the Fed

Mark Calabria, director of financial regulatory studies at the CATO Institute, fact checks some of the Federal Reserve's arguments against Audit the Fed (SPOILER ALERT: The Fed's arguments fail the fact check):

With the introduction of bills in both the House (H.R. 24) and Senate (S.264) allowing for a GAO audit of the Federal Reserve’s monetary policy, officials at both the Board and regional Fed banks have launched an attack on these efforts. While we should all welcome this debate, it should be one based on facts. Unfortunately some Fed officials have made a number of statements that could at best be called misleading.

For instance Fed Governor Jerome Powell recently claimed “Audit the Fed also risks inserting the Congress directly into monetary policy decisionmaking”. I’ve read and re-read every word of these bills and have yet to find such. H.R. 24/S.264 provide for no role at all for Congress to insert itself into monetary policy, other than Congress’ existing powers. I would urge Governor Powell to point us to which particular part of the bill he is referring to, as I cannot find it.

Perhaps Governor Powell is worried that an audit would allow Congress to regularly “harass” the Fed. David Wessel states this fear as “Fed officials worry…that aggressive members of Congress unhappy with a Fed interest-rate decision could dispatch the GAO repeatedly to investigate, essentially using the GAO as a way to pressure the Fed to change its policies.” Richmond Fed President Jeff Lacker has described this as “high frequency harassment”. Such comments, however, display a fair amount of ignorance as to how GAO operates. As someone who has handled GAO requests for the Senate Banking Committee, I can say there’s nothing “high frequency” about it. Even H.R. 24/S.264 contemplates a 90 day turnaround after an audit is completed. Neither Congress nor GAO is currently constituted in such a manner for any of this to happen at “high frequency”.Several Fed policy-makers point out that the Fed is already “audited”. Of course that’s besides the point since the bills are not about financial audits, but rather policy audits.